The IRA and the 401(k) Comparing their features, merits, and demerits. Taxes are deferred on money held within IRAs and 401(k)s. That opens the door for tax-free compounding of those invested dollars – a major plus for any retirement saver.1    IRAs and 401(k)s also offer you another big tax break. It varies depending on whether the account is traditional or Roth in nature. When you have a traditional IRA or 401(k), your account contributions are tax deductible, but when you eventually withdraw the money for retirement, it will be taxed as regular income. When you have a Roth IRA

Discover the 403(b) This retirement plan allows teachers & employees of non-profits to invest for their futures.  Does your spouse contribute to a 401(k)? You are probably eligible for a retirement plan that can help you save and invest for retirement in the same way – a 403(b). 403(b) plans actually predate 401(k)s. They first appeared in the 1950s. School districts and non-profit organizations commonly offer these retirement savings vehicles to their employees.1  Contributions to most 403(b)s are 100% tax deductible. Typically, you just defer a small percentage of your salary into these plans per paycheck, prior to taxes being

Getting Your Personal Finances in Shape for 2019 Fall is a good time to assess where you stand and where you could be. You need not wait for 2019 to plan improvements to your finances. You can begin now. The last few months of 2018 give you a prime time to examine critical areas of your budget, your credit, and your investments. You could work on your emergency fund (or your rainy day fund). To clarify, an emergency fund is the money you store in reserve for unforeseen financial disruptions; a rainy day fund is money saved for costs you

5 Retirement Concerns Too Often Overlooked Baby boomers entering their “second acts” should think about these matters. Retirement is undeniably a major life and financial transition. Even so, baby boomers can run the risk of growing nonchalant about some of the financial challenges that retirement poses, for not all are immediately obvious. In looking forward to their “second acts,” boomers may overlook a few matters that a thorough retirement strategy needs to address. RMDs. The Internal Revenue Service directs seniors to withdraw money from qualified retirement accounts after age 70½. This class of accounts includes traditional IRAs and employer-sponsored retirement

Underappreciated Options for Building Retirement Savings Facebook Google+ Twitter LinkedIn More people ought to know about them.  There are a number of well-known retirement savings vehicles, used by millions. Are there other, relatively obscure retirement savings accounts worthy of attention? Are there prospective benefits for retirement savers that remain under the radar? The answer to both questions is yes. Consider these potential routes toward greater retirement savings.      Health Savings Accounts (HSAs). People enrolled in high-deductible health plans (HDHPs) commonly open HSAs for their stated purpose: to create a pool of money that can be applied to health care expenses.

Starting a Roth IRA for a Child or Grandchild This early financial decision could prove profoudly positive over time. Facebook Google+ Twitter LinkedIn Email Do you have a child or grandchild earning some income? Indirectly, that after-school or summer job might present a savings opportunity for that teenager. You could help your child or grandchild save for future goals by assisting them to create and fund a Roth IRA. So many people wish they had begun saving for retirement sooner. Imagine how your child or grandchild’s prospects for building lifetime retirement savings might improve by starting as soon as possible.      Here

Are Changes Ahead for Retirement Accounts? A bill now in congress proposes to alter some longstanding rules. Facebook Google+ Twitter LinkedIn Email Most Americans are not saving enough for retirement, despite ongoing encouragement to do so (and recurring warnings about what may happen if they do not). This year, lawmakers are also addressing this problem, with a bill proposing big changes to IRAs and workplace retirement plans.    The Retirement Enhancement and Savings Act (RESA), introduced by Senator Orrin Hatch, would amend the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) in some significant ways.1      Contributions to

The Snowball Effect Save and invest, year after year, to put the full power of compounding on your side. Facebook Google+ Twitter LinkedIn Email Have you been saving for retirement for a decade or more? In the foreseeable future, something terrific is likely to happen with your IRA or your workplace retirement plan account. At some point, its yearly earnings should begin to exceed your yearly contributions. Just when could this happen? The timing depends on several factors, and the biggest factor may simply be consistency – your ability to keep steadily investing and saving. The potential for this phenomenon

Take these financial lessons to heart. You have a chance to manage your money better than previous generations have. Some crucial financial steps may help you do just that.     Live below your means and refrain from living on margin. How much do you save per month? Generations ago, Americans routinely saved 10% or more of what they made, either depositing those savings or investing them. This kind of thriftiness is still found elsewhere in the world. Today, the average euro area household saves more than 12% of its earnings, and the current personal savings rate in Mexico is 20.6%.1

The notion that we separate from work in our sixties may have to go. An executive transitions into a consulting role at age 62 and stops working altogether at 65; then, he becomes a buyer for a church network at 69. A corporate IT professional decides to conclude her career at age 58; she serves as a city council member in her sixties, then opens an art studio at 70. Are these people retired? Not by the old definition of the word. Our definition of “retirement” is changing. Retirement is now a time of activity and opportunity.    Generations ago,

Our increased longevity poses a retirement planning challenge. Some of us may retire at 65 and live to 100 or 105. Advances in health care may make this a strong possibility. The corresponding question is: will we outlive our money?   More people are spending more of their lives in retirement. According to the actuaries at Social Security, today’s 65-year-olds have roughly a 25% chance of living into their nineties, and about one in ten will live to 100 or longer. Clearly, this puts a strain on Social Security. When it first sent out retirement benefits in 1940, the average life

Financial burdens could alter their retirement prospects. Imagine retiring with $50,000 of debt. Some new retirees owe more than that. Outstanding home loans, education debt, small business loans, and lingering credit card balances threaten to compromise their retirement plans. How serious is the problem? A study from the University of Michigan’s Retirement Research Center illustrates how bad it has become. Back in 1998, 37% of Americans aged 56-61 shouldered recurring debt; the average such household owed $3,634 each month (in 2012 dollars). Today, 42% of such households do – and the mean debt load is now $17,623.1 Are increased mortgage

Earning too much may cause portions of your retirement benefits to be taxed. You may be shocked to learn that part of your Social Security income could be taxed. If your provisional income exceeds a certain level, that will happen. Just what is “provisional income”? The Social Security Administration defines it with a formula. Provisional income = your modified adjusted gross income + 50% of your total annual Social Security benefits + 100% of tax-exempt interest that your investments generate.1 Income from working, pension income, withdrawals of money from IRAs and other types of retirement plans, and interest earned by

What pre-retirees owe could compromise their future quality of life. The key points of retirement planning are easily stated. Start saving and investing early in life. Save and invest consistently. Avoid drawing down your savings along the way. Another possible point for that list: pay off as much debt as you can before your “second act” begins. Some baby boomers risk paying themselves last. Thanks to lingering mortgage, credit card, and student loan debt, they are challenged to make financial progress in the years before and after retiring. More than 40% of households headed by people 65-74 shoulder home loan

What number should you strive to reach? It is agreed that the earlier you start saving for retirement, the better. The big question on the minds of many savers, however, is: “How am I doing?” This article will show you some rough milestones to try and reach. (Keep in mind that you may need to save more or less than these amounts based on your objectives and lifestyle and income needs.)   At age 30, can you have the equivalent of a year’s salary saved? Some 30-year-olds have the equivalent of a year’s salary in debt, it is true; the

If that is your dream, explore whether these steps could be useful to take. How could you retire in your fifties by choice? You will need abundant retirement savings and ways to access your retirement assets that lessen or avoid early withdrawal penalties. You may also need to have other, sometimes overlooked, components of retirement planning in place.    There are ways to tap retirement savings accounts before 60. True, the I.R.S. discourages this with 10% penalties on traditional IRA withdrawals prior to age 59½ and withdrawals from many employee retirement plans before age 55½ – but those penalties may

Retirement Savings

Why an early start (and accepting some risk) matters. Are you on track to save $1 million or more for retirement? If you are 50 or younger, you may need that much in savings to generate the kind of retirement income you prefer.   Personal finance website NerdWallet recently did some math concerning this very objective. What kind of sustained savings effort would a 30-year-old with nothing invested need to make to amass $1 million in retirement savings by age 67, assuming a consistent 6% annual return? (Keep in mind, a tax-advantaged retirement account is not the only potential source of

A few things you may want to think about before filing for benefits. Whether you want to leave work at 62, 67, or 70, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.    How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after age 67 (Full Retirement Age), your monthly benefit will be larger than

Even those who have saved millions must prepare for a lifestyle adjustment. A successful retirement is not merely measured in financial terms. Even those who retire with small fortunes can face boredom or depression and the fear of drawing down their savings too fast. How can new retirees try to calm these worries? Two factors may help: a gradual retirement transition and some guidance from a financial professional.   An abrupt break from the workplace may be unsettling. As a hypothetical example, imagine a well-paid finance manager at an auto dealership whose personal identity is closely tied to his job. His

Once widely disparaged, these loans are getting a second look. Too many baby boomers are retiring with insufficient savings. Some of these boomers are “house rich” and “cash poor,” and in response to their circumstances, they may decide to arrange reverse mortgages. That move could make funding their retirements a little easier. Opinions about reverse mortgages are changing. Once saddled with an image problem, they are now seen as potentially useful instruments for producing additional retirement income. They are not without risk, however. Decades ago, reverse mortgages were marketed to senior citizens who were down on their financial luck. Retirees